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    • GSP
    • By GSP 8th Jun 17, 10:53 AM
    • 141Posts
    • 29Thanks
    GSP
    800k CETV Figure, is 28k p.a. sensible
    • #1
    • 8th Jun 17, 10:53 AM
    800k CETV Figure, is 28k p.a. sensible 8th Jun 17 at 10:53 AM
    Hi all,
    Aged 55 in just over 5 weeks and I intend to start a flexi access drawdown income next month, all being well.

    I have nothing to fall back on presently. The wife nearly 50 has a CETV figure currently at 150k.

    There is likely to be 3 inheritances in less than 20 years worth something around 75k, 150k and 200k in current values. EDIT, but I am not relying on them.

    The IFA I'm going with (% fee) suggested 28k p.a. to start with, and review from there. Another one we saw (flat fee) said we should survive on 35k to we are 100.

    We will have state pensions but not the full amounts something like 75% after being contracted out.

    The questions are is the 28k too sensible? Its a figure which should comfortably provide our needs. Would you go for the 35k.

    Be interested to hear your views and what you would do overall as you start out from 55. Always good to have opinions as sure these all differ slightly.
    Last edited by GSP; 08-06-2017 at 11:37 AM.
Page 1
    • westv
    • By westv 8th Jun 17, 11:10 AM
    • 4,350 Posts
    • 1,969 Thanks
    westv
    • #2
    • 8th Jun 17, 11:10 AM
    • #2
    • 8th Jun 17, 11:10 AM
    A read of this thread might be helpful

    http://forums.moneysavingexpert.com/showthread.php?t=5466114&highlight=drawdown
    • Linton
    • By Linton 8th Jun 17, 11:11 AM
    • 8,495 Posts
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    Linton
    • #3
    • 8th Jun 17, 11:11 AM
    • #3
    • 8th Jun 17, 11:11 AM
    Based on past history drawing down a steady 28K increasing with inflation from an 800K pot is considered sensible. This assumes that you manage your investments sensibly and are not over cautious. The problem with drawdown is that if you take too much during the bad times you risk eating into the capital you need to generate future income.

    If you are prepared to vary your drawdown depending on market conditions past history suggests that you could go up to 40K or more. See jamesd's thread on the subject.

    One caveat - all this is based on historic data. The real future may be very different.
    • JoeCrystal
    • By JoeCrystal 8th Jun 17, 11:14 AM
    • 1,292 Posts
    • 755 Thanks
    JoeCrystal
    • #4
    • 8th Jun 17, 11:14 AM
    • #4
    • 8th Jun 17, 11:14 AM
    I believe you should discard any notions of the future inheritances. You may think it is likely but it would be foolish to base your retirement plan on them. Just wondering here, is this 800.000 is already transferred out or still within DB pension scheme? If so, how much will it pay?

    Having said this, it is very enviable position to be in!
    • ex-pat scot
    • By ex-pat scot 8th Jun 17, 11:15 AM
    • 214 Posts
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    ex-pat scot
    • #5
    • 8th Jun 17, 11:15 AM
    • #5
    • 8th Jun 17, 11:15 AM
    This is one instance where you need to properly list out the timings and amounts of all relevant cash flows from now.

    - start date and amount of state pensions x 2
    - plan of attack for your wife (est retirement date, est pot value at retirement)
    - put the figures into cFireSim or similar.
    - calculate your current pot value (is it a CETV quote from existing DB pensions, or is this your current DC pot value, or a mix of the two)
    - what is your ongoing investment strategy for the undrawn element of the pot (ie are you going to keep most of the 800k in equities, and draw 1 year's amount at a time?)
    - play about with the drawdown rate in cFireSim to see how the amounts drawn would impact your long term capital, and chance of success to age 95 (say) - ie 40 year horizon.

    Frankly, my initial stab before going into any calculations or models is that a 800k pot, invested in equities, can yield 4% (32,000 pa gross) without significant risk of long term depletion of capital. That's before you factor in the SP, your wife's pension and SP, and any future inheritances.
    I suspect that the detailed analysis would get you to a good 40,000 pa gross initial drawdown (but I haven't run the numbers. I'll leave that delight for you!)

    Another question for you: what are you paying the IFA for? Just to run the numbers? To recommmend a drawndown strategy and investment strategy? If so, is the figure value for money? SHould you be looking at a one -off advice charge (fixed fee, not %) rather than a possible long term recurring fee?
    • molerat
    • By molerat 8th Jun 17, 11:57 AM
    • 17,332 Posts
    • 11,517 Thanks
    molerat
    • #6
    • 8th Jun 17, 11:57 AM
    • #6
    • 8th Jun 17, 11:57 AM
    Also worth looking at topping up your state pensions. If you are both at only 75% that could bring in another 4K between you for a relatively small payment, payback of the capital is 3-4 years.
    www.helpforheroes.org.uk/donations.html
    • Linton
    • By Linton 8th Jun 17, 12:27 PM
    • 8,495 Posts
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    Linton
    • #7
    • 8th Jun 17, 12:27 PM
    • #7
    • 8th Jun 17, 12:27 PM
    And another bit of advice....

    Once you take your SP , if you go for some of the higher drawdown estimates you will be paying higher rate income tax. Therefore I suggest you consider drawing down all the money you can from your SIPP, keeping within the basic rate tax band before you take your SP. Anything you dont need immediately you can put in an S&S ISA, possibly invested in the same way as your SIPP.
    • stoozie1
    • By stoozie1 8th Jun 17, 12:33 PM
    • 367 Posts
    • 211 Thanks
    stoozie1
    • #8
    • 8th Jun 17, 12:33 PM
    • #8
    • 8th Jun 17, 12:33 PM
    It looks like you aren't maximising your wife's personal allowance between her retirement and her SP age?

    Could you put as much as possible into her pension over the next 5 years to gain the tax relief now, and also use her taxfree allowance in 5 years.
    • gibbo888
    • By gibbo888 8th Jun 17, 12:59 PM
    • 36 Posts
    • 7 Thanks
    gibbo888
    • #9
    • 8th Jun 17, 12:59 PM
    • #9
    • 8th Jun 17, 12:59 PM
    GSP
    I have similar figures to you, as already discussed on other posts, albeit i am 10 years younger.

    I have ran all the calculations alluded to above, basing my starting amount at 46 years old, and a withdrawal of 36k.(i know its not possible to do this, but for the calculation it was)
    and the money doesn't run out until i am nearly 85.(95 for you)

    So 36K + 3% inflation = 39 years. with a 95% success (assuming 4% growth on investments)(very little tax paid)
    Then.
    Add in full SP x2 @ 67 and a 25% reduction @ 75 and any potential inheritance monies and there is a significant pot of money left over.
    So it looks doable historically!!
    • xylophone
    • By xylophone 8th Jun 17, 1:08 PM
    • 23,441 Posts
    • 13,624 Thanks
    xylophone
    Re SP
    https://www.royallondon.com/Global/documents/GoodWithYourMoney/TOPPING-UP-YOUR-STATE-PENSION-GUIDE.pdf
    • blisteringblue
    • By blisteringblue 8th Jun 17, 1:28 PM
    • 1,040 Posts
    • 1,892 Thanks
    blisteringblue
    Very similar this to myself, although I am only 50 this year. I'm in the process of transferring 2 x DB pensions into a SIPP. I will be sat around 700k after this, with about 70K pension investment to go over the remaining 5 years from the current live pension with work (DC). I've a 3rd small DB where the CETV wasn't worth it so will leave that to come in at 65.

    I said 2K net a month was my number with my IFA obviously without the mortgage (small anyway and whatever is remaining will come out the tax free element) so again very similar to your 28k. Haven't decided if I will take the full 25% of final pot at 55 or not yet. IFA said not to and just what was needed.

    I'm quite conservative and will be sticking with low risk funds so expect some growth over the 5 years, but with Brexit in the middle of this will be happy around the 800K mark, anything else is a bonus.

    I've been in a DC scheme since 2006 when the DB finished so I've seen what a financial crisis can do to the numbers, although have also seen the possible recovery if you manage it right. Hence I was happy with the risk of giving up the DB.

    Best of luck to you.
    • Linton
    • By Linton 8th Jun 17, 1:38 PM
    • 8,495 Posts
    • 8,438 Thanks
    Linton
    GSP
    I have similar figures to you, as already discussed on other posts, albeit i am 10 years younger.

    I have ran all the calculations alluded to above, basing my starting amount at 46 years old, and a withdrawal of 36k.(i know its not possible to do this, but for the calculation it was)
    and the money doesn't run out until i am nearly 85.(95 for you)

    So 36K + 3% inflation = 39 years. with a 95% success (assuming 4% growth on investments)(very little tax paid)
    Then.
    Add in full SP x2 @ 67 and a 25% reduction @ 75 and any potential inheritance monies and there is a significant pot of money left over.
    So it looks doable historically!!
    Originally posted by gibbo888
    You dont seem to have used cfiresim which carries out a large number of simulations based on starting retirement on different dateswhere the return and inflation are based on actual values over the past 140 years.

    When I run it I get a success rate in terms of not running out of money of 75% for taking 36K, inflation adjusted from an 800K pot for 40 years. 75% seems a bit low to me since you dont get a second chance. 28K shows a 98% success rate.

    It's not clear to me exactly what we are talking about on this thread. Is it as the title suggests a safe drawdown from 800K or is it what annual expenditure/gross income the OP could reasonably live on including SP, inheritances etc. I am assuming the former.
    • CFrog
    • By CFrog 8th Jun 17, 1:42 PM
    • 56 Posts
    • 36 Thanks
    CFrog
    Although my wife and I are a few years older, our situation has some similarities; our joint 'pot' is of a similar size but I do have the added benefit of a DB pension that provides some guaranteed income. I have used an excel model (including a few assumptions on inflation, growth etc) to help me think about / model the various options but I would make the following pointers / comments:

    - You say 28k should be enough for your needs. You need to get a better understanding of your outgoings and how they are likely to change over time. There are a number of threads on this, particularly "the number" thread. I don't know your circumstances (kids / mortgage etc) other sources of income (working part-time?) but you need to factor this into your thinking / model too.
    - Don't forget your income requirement will be nett of tax. Drawing 28k (GROSS) pa off 800k seems reasonable as it's less than the much quoted 'safe' figure of 4%. As recommended by Linton, look at Jamesd's thread on drawdown.
    - If modelling income / outgoings, don't forget your SP income will be taxed alongside any income you take from your drawdown funds. For me, I have anticipated reducing the income I'll take from my SIPP / ISAs as our SPs start so as to keep us in the low tax bands.
    - If you find the 28k is sufficient, why go for the 35k? See if you can live comfortably off this and increase your income if required.
    - Need to think about whose pot is providing the 28k. Is the 800k CETV your combined amount? When thinking about income from your drawdown 'pot' don't forget that any monies taken out will be taxed. There is therefore a tax consideration as the taxable income is split across you and your wife.
    - You suggest you don't have any other savings other than the DC pensions? I'd consider putting some of the pot into drawdown and taking some tax free cash. Some of this could provide a cash 'buffer' or possibly topping up ISAs to provide some tax free income or top up your SP entitlement.
    - I've adopted a strategy of having my 'pot' split across a number of 'buckets': c. 3 years income requirements in a cash 'buffer', c. 7-8 years income in wealth preservation / lower risk funds and the balance of my pot in growth / higher risk funds. I aim to rebalance the buckets each year by transferring growth / income as appropriate. I haven't considered other things such as P2P, VCT etc; you may wish to.
    - Don't rely on inheritances (or downsizing). If this happens then it's a bonus and provides some funds that can go to help children or provide a few luxuries. For me, if / when that happens I'm going to use inheritances to top up ISAs.
    • TBC15
    • By TBC15 8th Jun 17, 4:34 PM
    • 226 Posts
    • 79 Thanks
    TBC15
    And another bit of advice....

    Once you take your SP , if you go for some of the higher drawdown estimates you will be paying higher rate income tax. Therefore I suggest you consider drawing down all the money you can from your SIPP, keeping within the basic rate tax band before you take your SP. Anything you dont need immediately you can put in an S&S ISA, possibly invested in the same way as your SIPP.
    Originally posted by Linton
    Why would income tax come into it if he was cashing in investments? Would CGT not be the worry?
    • TBC15
    • By TBC15 8th Jun 17, 4:41 PM
    • 226 Posts
    • 79 Thanks
    TBC15
    Although my wife and I are a few years older, our situation has some similarities; our joint 'pot' is of a similar size but I do have the added benefit of a DB pension that provides some guaranteed income. I have used an excel model (including a few assumptions on inflation, growth etc) to help me think about / model the various options but I would make the following pointers / comments:

    - You say 28k should be enough for your needs. You need to get a better understanding of your outgoings and how they are likely to change over time. There are a number of threads on this, particularly "the number" thread. I don't know your circumstances (kids / mortgage etc) other sources of income (working part-time?) but you need to factor this into your thinking / model too.
    - Don't forget your income requirement will be nett of tax. Drawing 28k (GROSS) pa off 800k seems reasonable as it's less than the much quoted 'safe' figure of 4%. As recommended by Linton, look at Jamesd's thread on drawdown.
    - If modelling income / outgoings, don't forget your SP income will be taxed alongside any income you take from your drawdown funds. For me, I have anticipated reducing the income I'll take from my SIPP / ISAs as our SPs start so as to keep us in the low tax bands.
    - If you find the 28k is sufficient, why go for the 35k? See if you can live comfortably off this and increase your income if required.
    - Need to think about whose pot is providing the 28k. Is the 800k CETV your combined amount? When thinking about income from your drawdown 'pot' don't forget that any monies taken out will be taxed. There is therefore a tax consideration as the taxable income is split across you and your wife.
    - You suggest you don't have any other savings other than the DC pensions? I'd consider putting some of the pot into drawdown and taking some tax free cash. Some of this could provide a cash 'buffer' or possibly topping up ISAs to provide some tax free income or top up your SP entitlement.
    - I've adopted a strategy of having my 'pot' split across a number of 'buckets': c. 3 years income requirements in a cash 'buffer', c. 7-8 years income in wealth preservation / lower risk funds and the balance of my pot in growth / higher risk funds. I aim to rebalance the buckets each year by transferring growth / income as appropriate. I haven't considered other things such as P2P, VCT etc; you may wish to.
    - Don't rely on inheritances (or downsizing). If this happens then it's a bonus and provides some funds that can go to help children or provide a few luxuries. For me, if / when that happens I'm going to use inheritances to top up ISAs.
    Originally posted by CFrog
    At what level of annual investment growth do you replenish the day to day 3yr cash bucket?
    • phillw
    • By phillw 8th Jun 17, 4:44 PM
    • 937 Posts
    • 555 Thanks
    phillw
    Why would income tax come into it if he was cashing in investments? Would CGT not be the worry?
    Originally posted by TBC15
    The SIPP is a pension. No capital gains tax & only income tax on withdrawals.
    • CFrog
    • By CFrog 8th Jun 17, 5:10 PM
    • 56 Posts
    • 36 Thanks
    CFrog
    At what level of annual investment growth do you replenish the day to day 3yr cash bucket?
    I am assuming c.4% overall return on my lower risk funds and c.6% on the remainder.
    • Thrugelmir
    • By Thrugelmir 8th Jun 17, 6:05 PM
    • 55,873 Posts
    • 49,244 Thanks
    Thrugelmir
    Frankly, my initial stab before going into any calculations or models is that a 800k pot, invested in equities, can yield 4% (32,000 pa gross) without significant risk of long term depletion of capital.
    Originally posted by ex-pat scot
    4% could be considered high in the current market.
    "Wide diversification is only required when investors do not understand what they are doing." - Warren Buffett
    • ex-pat scot
    • By ex-pat scot 9th Jun 17, 9:08 AM
    • 214 Posts
    • 233 Thanks
    ex-pat scot
    4% could be considered high in the current market.
    Originally posted by Thrugelmir
    He should be looking at a 40 year timeframe, and over that time the long term return will be frankly nearer 5%

    Even in the short term, since 2007 the return has been better than 5%.

    The key is with the investment strategy - mine is to look at a global diversified portfolio ie VRWL.

    Frankly, with the overall level of assets under their control, they can afford to be flexible and have the option of throttling up or down as portfolio values move. They will have the 2 x state pension as a floor, ie 16,000 (assuming they ensure they have full entitlement), so once they reach SP age they will only need to produce 12,000 to give a continued total of 28,000 gross pa.
    • Linton
    • By Linton 9th Jun 17, 10:10 AM
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    • 8,438 Thanks
    Linton
    He should be looking at a 40 year timeframe, and over that time the long term return will be frankly nearer 5%

    Even in the short term, since 2007 the return has been better than 5%.

    The key is with the investment strategy - mine is to look at a global diversified portfolio ie VRWL.

    Frankly, with the overall level of assets under their control, they can afford to be flexible and have the option of throttling up or down as portfolio values move. They will have the 2 x state pension as a floor, ie 16,000 (assuming they ensure they have full entitlement), so once they reach SP age they will only need to produce 12,000 to give a continued total of 28,000 gross pa.
    Originally posted by ex-pat scot
    The difficult problem with steady drawdown isnt the long term, what can kill it is low equity values in the short/medium term.

    You cant predict as certain a long term return over the next 40 years of 5%, and presumably that's a long term return after inflation. Over that length of time things can change considerably. In my records I have a pension illustration from 1993. That was based on a low annual return estimate of 8.5% and a high one of 13.5%.

    However I agree that the OP has more than sufficient other income beyond the 800K DC pot for them not to be worried about their finances in retirement and to be able to take prudent risks with their investment strategy.
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